On September 12, ISDA and the Institute of International Finance (IIF) submitted a joint response to the Prudential Regulation Authority’s (PRA) consultation on adjustments to the market risk capital framework (CP 17/25).

ISDA and the IIF strongly believe the market risk capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules. While our membership agrees with the proposed delay to the FRTB internal models approach, which allows more time to consider issues with internal models, there are some significant operational costs to operate a dual system of the FRTB standardized approach (FRTB-SA) and the current (Basel 2.5) internal models. Members of ISDA and the IIF would like to see more flexibility, with an opt-out mechanism allowing banks to fully continue with their existing models or to fully transition to FRTB-SA at the start of 2027. This would reduce operational complexity and align with the PRA’s objective of implementing the Basel 3.1 framework.

The proposed changes to the treatment of funds (collective investment undertaking) and the residual risk add-on are steps in the right direction in addressing FRTB-SA implementation issues, but further adjustments are needed.

The response also includes further recommendations beyond the PRA’s proposed changes, which have been long-standing advocacy items and remain critical to achieve a more risk-sensitive FRTB, reduce the operational complexity of the framework and encourage wider adoption of internal models.

Finally, it is essential for the Basel Committee to thoroughly examine inconsistencies in implementation across jurisdictions.